A. O. Smith Corp. (AOS, Financial) filed Quarterly Report for the period ended 2009-06-30.
A. O. Smith Corporation with headquarters in Milwaukee Wis. is a diversified manufacturer serving customers worldwide. The company is one of the world\'s leading manufacturers and marketers of residential and commercial water heating equipment offering a comprehensive line featuring the best- known brands in the industry. It is also one of North America\'s largest manufacturers of electric motors with an extensive line of hermetic fractional horsepower and integral horsepower motors for residential commercial and industrial applications. A. O. Smith employs people at facilities in the United States Mexico China Canada and Europe. A. O. Smith Corp. has a market cap of $1.23 billion; its shares were traded at around $40.56 with a P/E ratio of 19.6 and P/S ratio of 0.5. The dividend yield of A. O. Smith Corp. stocks is 1.9%. A. O. Smith Corp. had an annual average earning growth of 2.5% over the past 10 years.
The primary accounting impact of the SICO transaction is in the calculation of earnings per share because the accounting rules require the use of SICO adjusted average shares outstanding rather than AOS shares outstanding prior to closing. Eliminating the impact of the transaction as set forth in the table on the following page, non-GAAP net earnings were $23.7 million or $0.79 per diluted share in the second quarter of 2009 and compared to $32.0 million or $1.06 per share in the second quarter of 2008. Reported net earnings for the first six months of 2009 were $24.0 million or $1.38 per diluted share and compared to net earnings of $15.9 million or $1.67 per share in the first six months of 2008. The reported 2009 year to date GAAP net earnings and diluted earnings per share in this Form 10-Q differ from the amounts reported in our press release issued July 17, 2009. The difference is due to the accounting treatment related to a SICO deferred tax adjustment in the first quarter of 2009 which was initially charged to tax expense and should have been recorded as a reduction to retained earnings as part of the spin-off of discontinued businesses. This correction results in changing the 2009 GAAP net earnings and earnings per diluted share as reported in the press release from $20.7 million and $1.19, respectively, to $24.0 million and $1.38, respectively, in this From 10-Q. This correction does not impact the second quarter as the deferred tax adjustment was a first quarter occurrence. This correction changes our 2009 full year earnings outlook from a range of $2.15 to $2.35 per fully diluted share in the press release to $2.25 to $2.50 per fully diluted share on a GAAP basis. Our non-GAAP net earnings, per share amounts and earnings outlooks are unaffected by this correction. Elimination of the impact of the transaction results in non-GAAP net earnings of $32.4 million or $1.07 per diluted share in the first half of 2009 as compared to non-GAAP net earnings of $53.8 million or $1.78 per share in the same period of 2008.
Selling, general and administrative (SG&A) expenses in the second quarter and first half of 2009 were lower than the same periods in 2008 by $5.8 million and $15.2 million, respectively. The reduction in SG&A in both the second quarter and first half of 2009 was due mostly to salaried personnel reduction activities and lower selling costs. SICO related SG&A was $0.3 million and $0.6 million in the second quarter and first half of 2008, respectively, and was negligible in 2009.
We did not incur any restructuring and other charges in the second quarter of 2009 whereas in the same period of 2008 we incurred $1.2 million of restructuring and other charges of which $0.9 million were fees incurred by SICO associated with the merger transaction. Restructuring and other charges were $1.5 million and $5.7 million in the first half of 2009 and 2008, respectively. The 2009 amount is comprised of a $1.0 million loss on sale of a vacated facility from a previously owned business recognized in corporate expense and $0.5 million of equipment move costs associated with certain Electrical Products plant closures. The $5.7 million recognized in 2008 included $1.5 million of fees incurred by SICO associated with the transaction with most of the remaining $4.2 million being related to plant closure activities at Electrical Products.
Operating earnings for our Electrical Products segment in the second quarter were $7.6 million or $14.9 million less than earnings of $22.5 million in the same period of 2008. First half operating earnings in 2009 were $4.6 million or $29.0 million lower than 2008 first half earnings of $33.6 million. The lower earnings in both the second quarter and first half of 2009 resulted from significantly lower volumes which more than offset cost savings achieved in 2009 as a result of 2008 restructuring activities.
Our working capital was $305.7 million at June 30, 2009 and compared to $280.1 million of working capital associated with continuing operations at December 31, 2008. Lower inventory levels of $56.0 million, as a result of focused inventory reduction programs at both businesses were offset by lower accounts payable balances at both businesses and a $57.3 million (non-cash) decline in our derivative contracts liability. Cash provided by operating activities during the first six months of 2009 was $93.6 million compared with $20.3 million during the first six months of 2008. A decline in the companys investment in current assets and liabilities this year compared with a significant increase last year more than offset lower earnings this year compared with the same period one year ago. For the total year, we expect cash provided by operating activities to be approximately $140 to $150 million.
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A. O. Smith Corporation with headquarters in Milwaukee Wis. is a diversified manufacturer serving customers worldwide. The company is one of the world\'s leading manufacturers and marketers of residential and commercial water heating equipment offering a comprehensive line featuring the best- known brands in the industry. It is also one of North America\'s largest manufacturers of electric motors with an extensive line of hermetic fractional horsepower and integral horsepower motors for residential commercial and industrial applications. A. O. Smith employs people at facilities in the United States Mexico China Canada and Europe. A. O. Smith Corp. has a market cap of $1.23 billion; its shares were traded at around $40.56 with a P/E ratio of 19.6 and P/S ratio of 0.5. The dividend yield of A. O. Smith Corp. stocks is 1.9%. A. O. Smith Corp. had an annual average earning growth of 2.5% over the past 10 years.
Highlight of Business Operations:
Sales in the second quarter of 2009 were $498.7 million or $123.4 million lower than sales of $622.1 million in the second quarter of 2008. Sales for the first half of 2009 declined to $980.4 million from $1,193.6 million in the same period last year. The lower sales for both the second quarter and first half of 2009 resulted from lower volume for residential and commercial water heaters in North America, which more than offset year over year pricing related to higher raw material costs at Water Products, and declining market demand and customer inventory reductions at Electrical Products. The decline in sales at both of our operating units reflect cautious customer spending and continuing softness in the domestic housing and commercial markets caused by the global recession. Reported net earnings for the second quarter were $21.3 million or $0.84 per diluted share and compared to $9.5 million or $1.00 per share in the second quarter of 2008. Our reported earnings per share under GAAP have been impacted by required accounting related to the companys transaction with Smith Investment Company (SICO), which closed on April 22, 2009 and is discussed in more detail in Note 1 of the Notes to Condensed Consolidated Financial Statements. For accounting purposes, the former controlling shareholder, SICO, is treated as the acquirer even though A. O. Smith Corporation (AOS) is the surviving corporation from a legal standpoint. Current and prior period earnings and earnings per share amounts reported by AOS include SICO earnings and shares outstanding as adjusted for the exchange ratio of the merger transaction prior to the closing date.The primary accounting impact of the SICO transaction is in the calculation of earnings per share because the accounting rules require the use of SICO adjusted average shares outstanding rather than AOS shares outstanding prior to closing. Eliminating the impact of the transaction as set forth in the table on the following page, non-GAAP net earnings were $23.7 million or $0.79 per diluted share in the second quarter of 2009 and compared to $32.0 million or $1.06 per share in the second quarter of 2008. Reported net earnings for the first six months of 2009 were $24.0 million or $1.38 per diluted share and compared to net earnings of $15.9 million or $1.67 per share in the first six months of 2008. The reported 2009 year to date GAAP net earnings and diluted earnings per share in this Form 10-Q differ from the amounts reported in our press release issued July 17, 2009. The difference is due to the accounting treatment related to a SICO deferred tax adjustment in the first quarter of 2009 which was initially charged to tax expense and should have been recorded as a reduction to retained earnings as part of the spin-off of discontinued businesses. This correction results in changing the 2009 GAAP net earnings and earnings per diluted share as reported in the press release from $20.7 million and $1.19, respectively, to $24.0 million and $1.38, respectively, in this From 10-Q. This correction does not impact the second quarter as the deferred tax adjustment was a first quarter occurrence. This correction changes our 2009 full year earnings outlook from a range of $2.15 to $2.35 per fully diluted share in the press release to $2.25 to $2.50 per fully diluted share on a GAAP basis. Our non-GAAP net earnings, per share amounts and earnings outlooks are unaffected by this correction. Elimination of the impact of the transaction results in non-GAAP net earnings of $32.4 million or $1.07 per diluted share in the first half of 2009 as compared to non-GAAP net earnings of $53.8 million or $1.78 per share in the same period of 2008.
Selling, general and administrative (SG&A) expenses in the second quarter and first half of 2009 were lower than the same periods in 2008 by $5.8 million and $15.2 million, respectively. The reduction in SG&A in both the second quarter and first half of 2009 was due mostly to salaried personnel reduction activities and lower selling costs. SICO related SG&A was $0.3 million and $0.6 million in the second quarter and first half of 2008, respectively, and was negligible in 2009.
We did not incur any restructuring and other charges in the second quarter of 2009 whereas in the same period of 2008 we incurred $1.2 million of restructuring and other charges of which $0.9 million were fees incurred by SICO associated with the merger transaction. Restructuring and other charges were $1.5 million and $5.7 million in the first half of 2009 and 2008, respectively. The 2009 amount is comprised of a $1.0 million loss on sale of a vacated facility from a previously owned business recognized in corporate expense and $0.5 million of equipment move costs associated with certain Electrical Products plant closures. The $5.7 million recognized in 2008 included $1.5 million of fees incurred by SICO associated with the transaction with most of the remaining $4.2 million being related to plant closure activities at Electrical Products.
Operating earnings for our Electrical Products segment in the second quarter were $7.6 million or $14.9 million less than earnings of $22.5 million in the same period of 2008. First half operating earnings in 2009 were $4.6 million or $29.0 million lower than 2008 first half earnings of $33.6 million. The lower earnings in both the second quarter and first half of 2009 resulted from significantly lower volumes which more than offset cost savings achieved in 2009 as a result of 2008 restructuring activities.
Our working capital was $305.7 million at June 30, 2009 and compared to $280.1 million of working capital associated with continuing operations at December 31, 2008. Lower inventory levels of $56.0 million, as a result of focused inventory reduction programs at both businesses were offset by lower accounts payable balances at both businesses and a $57.3 million (non-cash) decline in our derivative contracts liability. Cash provided by operating activities during the first six months of 2009 was $93.6 million compared with $20.3 million during the first six months of 2008. A decline in the companys investment in current assets and liabilities this year compared with a significant increase last year more than offset lower earnings this year compared with the same period one year ago. For the total year, we expect cash provided by operating activities to be approximately $140 to $150 million.
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